Economics of Bt Corn

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Approximately two out of every three acres is planted with a Bt corn variety in the United States. That is part of the overwhelming adoption of genetically enhanced seed, which also includes herbicide and drought tolerance. While all of them are designed to reduce various risks, farmers have an ulterior motive for their substantial endorsement of Bt corn.

Corn with a Bt gene to control certain insects was introduced in 1996, so USDA’s Economics Research Service (ERS) has analyzed a 15-year history of Bt corn adoption and performance. ERS researchers(pdf) say by the year 2000, 19% of acres were planted with Bt corn, and that jumped to 65% for the 2011 planting season. Quite a few agricultural economists attempted to quantify the economics of Bt corn in the first five years of adoption and found:

Yields were approximately 7.1 bu./acre higher for Bt adopters in Iowa.

Adopters had corn yields in 2001 that were 12.5 bu./acre higher than yields of non-adopters.

Average yields of Bt adopters in 2005 were 16.6 bu./acre higher than average yields of non-adopters.

So, right out of the box, or bag, Bt corn became popular because it had some magic yield component to it. The ERS ag economists used USDA’s national economic study in 2010 to evaluate Bt use on 1,208 farms in the 19 major corn-growing states. In that study, 77% of the adopters said they did so to benefit from increased yields. Another 10% reported it was done to save management time and 6% looked to Bt corn to save on insecticide costs.

Within the data turned up in the study actual corn yields were 26 bu. – or almost 20% higher – than conventional seed. Seed use was 0.03 bu./acre higher, and variable profits were $118/acre higher for adopters than non-Bt corn adopters. But since the seed is designed to produce a plant that controls harmful insects, it is unclear whether it continues to have an impact on the use of insecticides. The final two years of the data observed by the researchers were low in insect pressure and low in insecticide use, for both adopters and non-adopters of Bt corn. In the first 10 years of adoption insecticide use declined, and total pounds dropped by 4.5 million/year from 2001 to 2005; with another 3-million-pound/year decline in the final five years of the study. In 2010 only 1.6 million pounds were used.

The researchers found, “this study’s findings suggest that Bt seed use increases profits, yields, and seed demand. More specifically, the elasticity results show that a 10% increase in the probability of adoption is associated with a 2.3% increase in profits, a 2.3% (3.44 bu./acre) increase in yields, and a 2.1% increase in seed demand.” They report little statistically significant impact on insecticide demand, connected to the fact that 90% of farmers did not use insecticides, and when they do, their experience is expected to be profitable. And the researchers add, “The economic impacts of adopting GE crops vary with pest infestations, seed premiums and prices of alternative pest control programs.”

Summary

Survey results indicate that, on average, variable profits were $118/acre higher for adopters than for non-adopters, corn yields were 17 bu./ acre higher for adopters than for non-adopters, seed demand was 0.03 bu./acre higher for adopters than for non-adopters, and insecticide demand was at a very low level for both adopters and non-adopters. Analysis confirms that Bt adoption is positively associated with increased profits, yields and seeding rates. However, Bt adoption is not significantly related to insecticide use.